Large Entities Directive

Released Sept 2017, this Directive allows a safe harbor for certain QREs (for R&D credit purposes) that can be traced back to R&D expense under ASC 730 (for financial statement purposes), such that, the IRS will not challenge such QREs (wages and supplies only) that are reconciled to the amount shown on the audited financial statements (after adjustments).

Benefits

Reduction in risk/increased credit retention

Reduction in R&D credit reserve, leading to increase in earnings

Reduction in time (and fees) spent in audit

Reduction in time spent on fieldwork

Procedural Aspects

Requirements

ASC 730 R&D expense amount must be reported on the certified audit financial statements
-Footnote disclosure sufficient vs separate line item
-Preserves right to apply the safe harbor, if desired

Four disclosure statements attached to the tax return OR provided upon audit